Aug 12, 2013

Looking Good Through First Half Of Year

Social Security's only urgent funding problems is the Disability Trust Fund. The projections are that it will run out of money in 2016. I had written last month about the fact that so far this year the Disability Insurance Trust Fund was doing much better than anyone had projected.
We now have updated numbers on the income and outgo from the Disability Trust Fund through June of this year. I won't get too deep into the weeds here. The bottom line is that the Disability Trust Fund balance stood at $110.9 billion at the end of June, 2013. This is $11.8 billion below where it stood as of the end of 2012. That's a scary sounding drop but compare it to the projections for 2013. Note that I said projections. Social Security's Office of Chief Actuary makes three projections for each of the trust funds, an Intermediate projection, which is the one typically quoted in the media as well as a Low Cost or optimistic projection and a High Cost or pessimistic projection. Here are those projections for the entire year compared to the results halfway through the year:

Optimistic projection: Disability Trust Fund balance at end of 2013, $92.4 billion, down $30.3 billion from end of 2012

Intermediate projection: Disability Trust Fund balance at end of 2013, $89.2 billion, down $33.5 billion from end of 2012

Pessimistic projection: Disability Trust Fund balance at end of 2013, $85.8 billion, down $$36.8 billion from end of 2012

The actual results so far this year are considerably better than even the most optimistic projection. Does that mean that we're still going to hell in a hand basket but just not quite as fast? No, it may mean that we're not going to hell at all. The optimistic projection is that the Disability Trust Fund never runs out of money, that the draw down of its assets slows and eventually reverses in 2020, before the Disability Trust Fund ever runs out of money. So far this year we're doing much better than even this optimistic projection.

This doesn't mean that next year's projections will all say that the Disability Trust Fund will never run out of money but barring a sudden reversal over the last six months of this year, it's clear that next year's projections are all going to look better, perhaps a lot better. We're going to start out with a higher trust fund balance at the end of 2013. The actuaries will also be applying projected percentage changes in income and outgo in future years to a better baseline. Finally, there's a good chance that the actuaries will be projecting more favorable percentage changes in income and outgo for future years because of the favorable results this year.

I think it's already possible to project that next year's Office of Chief Actuary's Intermediate projection will be that the Disability Trust Fund will have enough money to keep going at least until 2017. The intermediate projection may even be that the Disability Trust Fund keeps going until 2018, which would be an enormous change over the course of just one year. A change of even one year in the date that the Disability Trust Fund runs out of money is a big deal politically. Republicans probably control the House of Representatives in 2016 and may control the Senate (to the extent that anyone controls the Senate). It's not a good year to have to make changes in Social Security's disability programs. 2017 on the other hand, who knows? This probably means no significant legislative changes through the end of 2016. The realistic possibility that no change will be needed at any point in the foreseeable future is huge.

The trust fund is an accounting mechanism, which allows the benefits to be paid out of the Treasury's general fund, without an appropriation.The only difference between paying out of the trust fund and paying for battleships, is that battleships need an official appropriation.The numbers do not provide the funding, only the authorization to fund.Every dollar redeemed from the trust funds increases the deficiuts, and the debt held by the public. Negative numbers, positive numbers, they all mean the same budget fiscal dynamics if ANY of the numbers are used.Don Levit

You are correct about the surge in revenues, but not the source.Payroll taxes go into the trust fund, which is a source of cash revenue.Interest is credited to the funds twice a year, not as a cash revenue source, but as a non cash source, for the income is not produced from payroll taxes, but from issuing additional debt.This is why since 2008, the assets of the trust fund have increased, while the cash flow has been negative. Cash flow, according to the SSA, does not include interest income.Don Levit